The Indices: Stock Market Snapshots
Have you noticed that newscasts pretty much follow the same formula? There are a few “top stories,” a weather forecast, sports recaps, and a cursory mention of the day’s stock market trading, usually according to the Dow Jones Industrial Average.
The Dow is quoted so eagerly and so often, many people treat it as the only game in town. It is not.
The DJIA is a snapshot of 30 companies, big ones, with tens (even hundreds) of billions of dollars in assets. A hiccup in one or two of those mega companies can distort the picture of the overall market, and even the overall economy, dramatically.
In my opinion, a more accurate snapshot is Standard & Poor’s index, the S&P 500. Tracking 500 companies, obviously, provides more data and a clearer picture than 30.
There are also indices that focus on a specific industry, or sector, of the economy such as high-tech, health care, etc. If you have invested heavily in a certain sector, it could be worthwhile to follow a corresponding index.
The key is to keep it in perspective. I think the snapshot metaphor is a good one. There are many locations from which to take a photo of the Grand Canyon, for example. All the photos are of the Grand Canyon, but they look different from one another depending on where the photographer was standing, the time of day the photo was taken, etc.
If you want to find out more about how the market works, and most importantly, how it can work for you, give us a call. There is no charge for the initial consultation.